SELLING YOUR PRIVATE OR PUBLIC COMPANY, SUBSIDIARY OR DIVISION

One of the most important and yet frustrating experiences for private, corporate or public owners is the sale of the stock or assets of a going business. For private business sellers, a sale is often a once-in-a-lifetime decision. For corporate sellers, the sale is usually part of an overall corporate strategy. For public company shareholders, a sale is often the only path to liquidity.

The key aspect to selling a business is to interest a small number of motivated buyers who have the experience and capital resources to react professionally, discreetly and quickly.

Buyers are usually corporations or investment group(s). If market conditions are right, the seller can consider a merger with a larger public or private company to achieve a tax-free exchange of stock. If the seller desires cash (often obtainable through a tax-free transaction), continued corporate independence, and, perhaps an equity involvement for the owners and/or management, then a sale to an investment group is a viable alternative. The role of the investment group as buyers of operating companies has become a major factor in the acquisition field in recent years.

Corporate sellers are usually motivated by strategic and economic reasons. Product line strategies, product fit and size, and markets targeted are major reasons for divestiture. The assets for sale, although usually profitable and trouble-free may not meet the corporate benchmarks for profit as a percent of sales, return on assets or equity or of growth in sales or earnings. Sometimes the corporate seller needs cash, has been unable to solve a management problem, and wishes to focus its management efforts or may even have antitrust problems, which can only be solved by a divestiture. Corporate owners of divisions or subsidiaries often find it difficult to supervise their holdings because of the diversity of activities or the distances involved, especially if these companies represent only a minor part of their overall activity.

Corporate sellers usually want cash for their unneeded or unwanted assets. The most viable buyers for corporate spin-offs are management teams and/or investment groups. Often, investors and incumbent managers team up to acquire a spin-off because the management group, although highly knowledgeable enough to structure the acquisition and package the financing alone. Management frequently has difficulty negotiating an arms length transaction with their own immediate supervisor. Finally, the lenders and sellers almost always insist on outside capital and/or expertise in the deal.

Major shareholders of small to medium-sized public companies often have little or not liquidity for their stock, or have few opportunities to raise capital through new offerings and can suffer from low price-earning ratios, yet they still have the high cost and reporting burden of remaining public. These companies have all the problems of being public, but enjoy none of the benefits.

The solution to this problem is for the corporations to buy back all of its stock or to sell substantially all of its assets or stock to an investment group. The first method of going private is usually very costly, risky, and time consuming. The sale of assets or stock to investors for cash is usually easier and quicker. In the case of cash-for-assets transactions, the shareholders of the public company may either redeem their shares for cash or remain as shareholders of the firm, which may become a subsidiary of an investment company. Using the cash merger technique, the shareholders end up with cash as in any other acquisition for cash. Investment groups have used both extremely effective techniques successfully in recent years.

The sale of a closely held company can provide estate liquidity for the owner and his family by separating his capital and his career. Other considerations are health, management succession, retirement, multiple ownership and division of interest. The prospect of going public is less desirable or viable than it used to be. The alternative of merging with a larger company often means the loss of identity and independence.

Often, the best alternative of merging with a larger company is to sell for cash and notes to an investment group. The sellers thereby preserve the continuity and independence of their management and employees by retaining employee benefit programs, pension and profit-sharing plans, and established relationships with vendors, customers, attorneys, accountants and banks. They may also contribute to and benefit from the future growth of the company by becoming part of the investment group.